Hainan A New jourNey - Savills

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Hainan A New jourNey - Savills
Cities and counties   Real estate investment
Sustainable development


                                        A New journey
Hainan A New jourNey - Savills
Hainan – Reimagined
    Starting in 2018, Hainan began its journey to   Hainan’s economy is expected to exceed
    become a free trade port and a key gateway      RMB2 trillion by 2035. An important node in
    to the Pacific and Indian Oceans. The island    China’s Belt and Road Initiative, the Hainan
    province’s unique location, taxation and        Free Trade Port (FTP) status is not only to
    system advantages will bring unprecedented      help boost the island’s economic development
    development opportunities for Hainan.           but also to help direct future reforms for the
    According to the 14th Five Year Plan, Hainan    Chinese mainland.
    will target annual economic growth of over
    10% per annum and an urbanisation rate of       Significant changes are also afoot for Hainan’s
    over 65% by 2025. Haikou and Sanya will be      real estate market. Residential policies look to
    the key drivers of growth, accounting for 60%   curb speculative demand but support end-use
    of the province’s population and 70% of its     demand. The land market looks to augment
    GDP.                                            commercial and industrial development,
                                                    bringing with it more opportunities but also
    As the economic makeup evolves and is           more competition. Developers should pay
    optimised, modern services and hi-tech          heed to long-term policy goals and changes
    industries are expected to take a leading       and seize upon opportunities after thorough
    role in future growth, reaching RMB350          due diligence.
    and RMB150 billion by 2025, respectively.
    Meanwhile, scientific and technological
    breakthroughs are expected to be made in the
    agriculture, marine and aviation sectors.


                Overview                                                                               4

                Cities and counties                                                                    6

                Real estate                                                                            8
                • Haikou commercial markets
                • Sanya commercial markets

                Sustainable development                                                                12
                • Building on a firm foundation – Tourism
                • Enhancing industry – Modern services
                • The future – Hi-tech

                Incentives                                                                             18
                • Corporates
                • Individuals

2                                          3
Hainan A New jourNey - Savills
Overview                                                                                                                              Overview

                                                                                                                                                               Hainan completed its high-speed rail line in 2015, allowing visitors to travel the circumference of the island
                                                                                                                                                               in about three hours. The rail loop spans 653 km and connects all twelve coastal cities and counties, with
                                                                                                                                               Railway         additional stops at Haikou and Sanya airports. Another high-speed railway directly connecting Haikou with
                                                                                                                                                               Sanya is currently under planning.

                                                                                                                                                               Hainan boasted 1,254 km of expressway by the end of 2020. The island tourism road, expected to be
                                                                                                                                               Expressway      completed in 2023, will connect several key tourism hotspots.

                                                                                                                                                               Hainan currently has 24 seaports. The four largest ports are Haikou Port, Basuo Port, Yangpu Port and
                                                                                                                                               Seaport         Sanya Port.

                                                                                                                                                               Hainan has four civilian airports, namely Haikou Meilan International Airport, Sanya Phoenix International
                                                                                                                                                               Airport, Qionghai Bo’ao Airport and Sansha Yongxing Airport. Haikou and Sanya ranked 16th and 18th in
                                                                                                                                                               China by 2020 airport passenger traffic, respectively.

                                                                                                                                    Six concepts
                                                                                                                                    Free Trade Zone: Hainan is home to the         people, (5) movement of transport and            Offshore duty-free policy: Individuals
                                                                                                                                    largest pilot FTZ in China out of a total      (6) the secure flow of data; “1” refers          travelling from Hainan to the mainland
                                                                                                                                    of 21 FTZs that have been established          to the building of a modern industrial           can purchase a limited value and
                                                                                                                                    by the end of 2020. While they are             system; and “4” is strengthening the             quantity of goods at offshore duty-free
                                                                                                                                    all entitled to preferential taxes and         institutional frameworks in the four             shops and collect them from designated
                                                                                                                                    other favourable regulations, they have        areas of taxation, social governance, rule       areas of airports, railway stations and
                                                                                                                                    differentiated positionings aligned to         of law and risk prevention and control.          ports. The tax exemptions include
                                                                                                                                    their respective strengths and focuses.                                                         tariff, import value-added tax and
                                                                                                                                                                                   Free flow across the first border,               consumption taxes.
                                                                                                                                    Free Trade Port: The Hainan FTP                efficient control at the second
                                                                                                                                    represents a key development goal              border: The “first-border” refers to             One Negative Three Positives: The
                                                                                                                                    of Hainan by 2050. It requires policy          China’s international customs border             Hainan free trade port will establish
                                                                                                                                    alignment with international markets           where, apart from prohibited and                 one negative and three positives (“zero
                                                                                                                       Hainan       in terms of market entry, a financial          restricted imports and exports, goods            tariffs”) lists by 2025. The negative list
                                                                                                                                    framework and taxation, which will             and articles can be freely imported              is for enterprises importing equipment
                                                                                                                                    allow free movement of trade elements,         into, and exported from, Hainan. The             for their own use, with goods not
                                                                                                                                    including people, commodities, data and        “second border” is between Hainan FTP            detailed in the negative list being

                                                                                                                                    capital.                                       and Mainland China. Goods transiting             exempt from tax. The positive lists
                                                                                                                                                                                   between Mainland China and the Hainan            include transport vehicles; raw materials
                                                                                                                                    6+4+1: The key elements of Hainan FTP          FTP are subject to customs duties and            for manufacturing purposes; and
                                                                                                                                    can be summarized by “6+1+4”. Where “6”        import/export-related taxes. This model          commercial goods for consumption by
                                                                                                                                    refers to liberalisation and facilitation      is in effect at the Yangpu Bonded Port           residents.
Hainan, China’s southernmost province,     partners. The island also plays an          major strategic projects; and (4) an         of (1) trade, (2) investment, (3) cross-       Area and will expand to the entire island
is the 28th largest provincial/municipal   important role in the “Maritime Silk                                                     border capital flow, (4) movement of           by the end of 2024.
                                                                                       international tourism and consumption
economy in China, with an output of        Road”, providing an important platform      centre. Development will focus on three
RMB553 billion in 2020, accounting for     for cooperation in trade, logistics,        major industries—tourism, modern
0.5% of the nation’s total. Despite its    tourism and cross-border exchanges          services and high-tech sectors.
                                                                                                                                    Timeline of the Master Plan for Hainan Free Trade Port
comparatively small island economy,        between China and other Belt and Road
Hainan has been the beneficiary            countries.                                  The Hainan Free Trade Port presents
of several reform and opening-up                                                       significant opportunities. 1,005
initiatives. China has seven special       Hainan, according to the Master Plan        foreign-invested enterprises (FIEs)             2025
economic zones (SEZ), but Hainan is        for the Construction of Hainan Free         were established in Hainan in 2020,             Have the free trade port system                                                                  2050
the only provincial-level SEZ (covers      Trade Port, released in June 2020,          nearly three times the number in 2019.          basically in place;                            Have a mature operation of the Hainan
only Hainan Island, a main area under      aims to develop three zones and one         Meanwhile, utilised foreign direct              Establish a leading business
                                                                                                                                                                                      Free Trade Port;                                  High-level free trade port
Hainan’s administration).                  centre. Namely, (1) a pilot zone for        investment (FDI) doubled to over US$3           environment in China; and                      Free and convenient exchange of                   with strong international
                                           comprehensively deepening reform and        billion. More domestic enterprises are          Gradual improvement of the law
                                                                                                                                                                                      people, transportation and data; and              influence established.
Hainan enjoys a favourable geography,      opening up; (2) a national-level pilot      also opening offices in Hainan, with            and regulations adapted for the                Establish a world-leading business
connecting the Greater Bay Area (GBA)      zone for ecological civilization; (3) the   plans to eventually tap into international      construction of the free trade ports.          environment.
with China’s Southeast Asian trading       service guarantee zone for national         markets.

                                                                4                                                                                                                                      5
Hainan A New jourNey - Savills
Cities and counties                                                                                                                     Cities and counties

Cities and counties
                                                                                                                                            Major economic indicators of Hainan by city/county, 2019

                                                                                                                                              City/       GDP                GDP per captica   Population             No. of above-      Real estate               Retail sales
                                                                                                                                             County       (mn RMB)           (RMB)             (10,000)               scale industrial   investment                (mn RMB)
                                                                                                                                                                                                                      enterprises        (mn RMB)

                                                                                                                                                 Haikou          167,193              72,218                233                   157           48,073                      78,558

                                                              Lingao                                                                                             67,786               87,105                 78                    25           29,993                      26,584
                                                                                                                                               Danzhou           35,764               39,114                92                     29               10,161                    9,704

                                                                                               Ding'an                                        Chengmai           33,018              66,413                 57                     49               6,543                     6,472

                     Changjiang                                            Tunchang                                                            Qionghai          28,330              54,630                 52                      11              5,477                   10,981

                                              Baisha                                                                                                                                                                               12
                                                                                                Qionghai                                       Wanning           23,557              40,490                 64                                      4,907                     8,841

                                                                                                                                             Wenchang            25,702              44,928                 60                     17               8,562                     8,918
             Dongfang                                              Qiongzhong

                                                  Wuzhushan                                                                                   Dongfang           19,308              44,684                 46                     15               1,535                     4,507
                                                                                                                  GDP 2019
                                                                                           Wanning                (100 mn RMB)

                                                                                                                                                 Lingao          19,540              43,085                  51                     3                1,911                    4,284

                                                         Baoting                                                                               Lingshui          18,320              54,562                 39                      7               9,883                     3,490

                                                                                                                                                Ledong           14,435              29,738                 55                      5               1,041                     4,611

                                                                                                                                                 Baisha              5,664           32,486                 20                      5                 387                     1,762

                                                                                                                                                Baoting              5,571           36,258                  17                      1              1,514                     1,736

Hainan province consists of four                Economic Circle to drive economic              third in economic output, one-fifth the
prefecture-level cities, five county-level      development across the whole province.         size of Haikou and half of Sanya, and         Changjiang          12,632              53,798                 26                     22                 758                     2,820
cities, four counties and six autonomous                                                       second in terms of population, after
counties.                                       Haikou and Sanya both have large               Haikou. Danzhou has an abundance of
                                                tertiary sectors accounting for more           tropical agricultural resources while also       Ding'an          10,442              34,890                 35                     17                1,241                    2,996
Haikou and Sanya are the two largest            than 70% of their local economies.             being home to the Yangpu Economic
cities in Hainan in terms of economic           Haikou’s tertiary sector, however, is          Development Zone (EDZ) (calculatedly
output, accounting for 32% and 13%              more evenly structured, with financial         separately), an important industrial         Qiongzhong               5,748            31,721                22                      8                  89                     1,809
of Hainan's GDP in 2020, while being            services and retail both accounting for        manufacturing area. Danzhou and
home to 25% and 8% of its population,           more than 17%, while Sanya is largely          Yangpu EDZ economies combined are
                                                                                                                                              Tunchang               8,565            31,721                 31                     4                555                      2,857
respectively. They are at the core of           supported by tourism and real estate.          roughly the same size as Sanya.
Hainan’s 2015-2030 development master
plan, which focuses on the Northern             Danzhou is the largest city in Hainan in                                                                             3,400            31,573                 11                     4                  93                      1,199
Hainan Comprehensive Economic                   terms of land area, accounting for 10%
Circle and the Southern Hainan Tourism          of the island's area. Danzhou also comes
                                                                                                                                                                                                                                                       Source CEIC, Savills Research

                                                                   6                                                                                                                                              7
Hainan A New jourNey - Savills
Real estate                                                                                                                                 Real estate

                                                                                                                                              Innovative land policies in Hainan, 2020

                                                                                                                                                                    Subject                                                     Content

  Real estate                                                                                                                                    January
                                                                                                                                                                Long-term rental
                                                                                                                                                                                         Encourage collectively-owned land to be developed into long-term rental apartments.
                                                                                                                                                                                         Give priority to the redevelopment of rural idle land, abandoned land, etc.

                                                                                                                                                                                    •    Standard land can be sold through auction, on the basis of lease-first, transfer-later,
  The real estate sector is a key recipient      These various measures led to a               fierce if demand doesn’t materialise                             Standard land            flexible terms and other methods specified in the notice.
  of Fixed Asset Investment (FAI) in             significant increase in commercial            as forecast. Grade A lettable office                             system              •    Land sales conditions can be tailored to individual use cases if the project brings
  Hainan, accounting for 56% of the total        and industrial land sales in 2019-2020        stock in Hainan is extremely limited,                                                     significant economic benefits.
  in 2015, compared to 24% nationally.           compared to 2017-2018, with a 2.2-            with most projects having been sold
  Investment in real estate development          fold increase in commercial-zoned             strata title. The emergence of quality                                               •    Small land plots can be bundled and sold together.
                                                                                                                                                                Point-like land
  peaked in 2017 and has declined in             land sold and an 8.1 fold increase in         lettable stock will help meet the needs             April                            •    The total site area of bundled sites should not exceed 30 acres, with each plot generally
  subsequent years, with its percentage          industrial-zoned land, bringing their         of larger institutions and high-growth                                                    not less than one acre in size.
  of total FAI falling to 46% in 2019.           ratios to 35 and 29%, respectively. In        companies that require flexibility and
                                                 contrast, the share of residential zoned      premium service quality.                            July
                                                                                                                                                                Residential land    •    Encourage the development of rental and affordable housing.
  The decline in real estate development         land fell from 41% to 29% over the                                                                             management          •    Land sold at auction with land and home price caps.
  investment is largely due to the local         same period, with most of this being          Corporate tenants and individuals have
  government’s tighter restrictions on           built as economic housing.                    become increasingly concerned about                                                  •    Encourage a balanced mix of industrial, storage, R&D, office, commercial and other use
  land use, which were put into effect                                                         health and the wider environment                                                          types.
                                                                                                                                                 October        Industrial land
  in 2018. Hainan introduced a series            The forecast growth in demand                 in recent years. Hainan has required                                                 •    Industrial land can be supplied in the form of long-term lease, lease-first, transfer-later, a
  of policies in 2019 to kick start the          resulting from the establishment of           residential buildings larger than 1,000                                                   combination of lease and transfer and flexible terms.
  development of 31,000 mu (roughly              the FTP will be met with a significant        sq m, or more than five floors, as well
  20.6 sq km) of land, which also has            increase in office, industrial and            as public facilities and commercial                                                  •    Promote the launch of urban villages, urban border villages, village collective
  the possibility of converting land             warehouse space over the mid-to-long          premises larger than 20,000 sq m                 November
                                                                                                                                                                land management
                                                                                                                                                                                         enterprises (factories), agricultural reclamation enterprises and other contiguous
  zoning to industrial/R&D usage.                term, helping to keep rental growth           to meet green building standards.                                                         development areas onto the land sales market, in accordance with laws and regulations.
  Hainan continued to explore ways of            in check. Developers and landlords,           These are also in alignment with the
                                                                                                                                                                                                                                                                    Source Savills Research
  optimising land usage and allocation of        however, will need to pay attention           national goal of building an ecological
  land resources in 2020.                        to launch dates and positioning as            civilisation pilot zone in Hainan.
                                                 competition for tenant could prove                                                           Residential regulations have been tightened significantly. Hainan has halted development in the four ecologically sensitive areas in
                                                                                                                                              the central region as well as the development of commodity residential along coastline. Since the implementation of house purchase
                                                                                                                                              restrictions in 2018, supply and transaction volumes have declined. Commercial residential transaction units fell 11.4% and 38.1% YoY
Land transacted area (GFA) in Hainan, 2010-2020                                                                                               in Haikou and Sanya respectively, though prices rose by 4.2% and 9.6%. Given limited supply and a growing economy, the long-term
                                                                                                                                              prospects for the residential market remain decidedly positive.
                                                                                 Other        Industrial        Office         Residential
                                                                                                                                              Regulations on residential market in Hainan

                                                                                                                                                     Subject                                                             Content

                                                                                                                                                                        •    After July 1, 2017, commercial residential projects must be fully furnished in order to obtain a sales
                                                                                                                                                 Fully decorated

                                                                                                                                                    Unit area           •    Construction of commodity residential with unit sizes smaller than 100 sqm (inclusive) to be halted.

                                                                                                                                                                        •    (Haikou) It is strictly forbidden to change the building usage, especially to residential design. No
mn sq m

                                                                                                                                                 Business reform             external balconies. Projects should have public corridors and toilets.
                                                                                                                                                                        •    Office space sold to an individual should not be less than 150 sqm.

                                                                                                                                               Existing home sales      •    No pre-sales allowed for land acquired after March 8, 2020 .

                                                                                                                                                                        •    Sanya: Online pricing must be strictly followed; online filing must be in the same month as contract
          10                                                                                                                                                                 signing.
                                                                                                                                                                        •    Haikou: Unauthorized price adjustments are not allowed after filing; online filing must be within 30
                                                                                                                                                                             days of contract signing.

                                                                                                                                                                        •    Non-Hainan households can purchase a maximum of one unit; Hainan households can purchases a
                                                                                                                                                                             maximum of two.
                                                                                                                                                 House purchase
          0                                                                                                                                                             •    Non-Hainan households must have paid local social security or individual income tax for two years
                 2011        2012         2013        2014         2015        2016         2017       2018           2019           2020                                    before purchasing. Five years of social security or individual income tax are required for some
                                                                                                                                                                             jurisdictions in Sanya, Haikou and Qionghai.
                                                                                                              Source CRIC, Savills Research
                                                                                                                                                                                                                                                                   Source Savills Research

                                                                      8                                                                                                                                           9
Haikou commercial markets                                                                                                             Sanya commercial markets

Haikou commercial markets                                                                                                              Sanya commercial markets

                         Office                                                             Retail                                                            Office                                                             Retail
Haikou’s office market has developed rapidly in recent          Haikou’s retail market started with department stores and they         Sanya, as predominately a tourist city, has a relatively      Sanya’s retail market, still at an early stage of development,
years thanks to both the favourable policy environment          remain popular today. Nevertheless, new developments have              underdeveloped office market, with only a handful of          features a mix of shopping malls, department stores, retail
and improving economy, while new developments are               been exclusively shopping malls since 2016. This has resulted in       completed projects. These projects tend to be located         streets, duty-free stores and outlet malls. With supply being
typically of Grade A standard. Haikou’s Grade A office          a gradual change in the structure of the retail property market to     along Yingbin Road, as well as in the Hedong and Hexi         limited in recent years, shoppers still prefer established
stock stood at 1.0 million sq m at the end of 2020, while       one that is now dominated by malls. The city’s total retail stock      areas. Yingbin Road boasts the best developments in the       department stores and retail podiums for the time being.
its vacancy rate was at 39.3%, down 9.0 percentage points       stood at 1.2 million sq m by the end of 2020, with a citywide          city, with stock in Hexi and Hedong primarily stratified
(ppts) YoY. Financial, professional services and real estate    vacancy rate of 16.9%, up 4.3 ppts YoY.                                Grade B and C developments. Sanya had only 97,000 sq m        There are six major retail precincts in Sanya, mostly along the
companies are still the main demand drivers.                                                                                           of Grade A office stock by the end of 2020, with a vacancy    coast. Jiefang Road and Dadonghai are the oldest retail areas and
                                                                Despite being relatively small, the Haikou market can still be         rate of 29.5%.                                                tend to serve local neighbourhoods. Sanya Bay, Yalong Bay and
Hainan has three key business areas, of which Binhai and        separated into ten distinct retail precincts. Of the four prime                                                                      Haitang Bay cater to tourist needs, with Haitang Bay positioned
Guomao are the most mature, while Dayingshan, situated          downtown precincts, Jiefang Rd and Haixiu are the oldest,              As the tertiary sector continues to grow and investment       slightly higher than the other two. Meanwhile, Yingbin Road
close to the provincial government headquarters, is still       while Guomao-Binhai and Dayingshan have benefited from                 pours in from financial services firms and SOEs on the        targets white-collar workers in the city’s central business
emerging. Future development is expected to spread east         the continued development of the surrounding office markets.           back of policy support, office leasing demand should          district. Sanya has 424,000 sq m of shopping mall space at the
and west into the Jiangdong New Area and West Coast,            Emerging retail areas have emerged in response to new urban            pick up, and tenants upgrade to Grade A premises as           end of 2020, with a citywide vacancy rate of 15.7%.
respectively, as the establishment of Hainan’s industrial       planning, such as the West Coast, or target large, prosperous          these become available. Future Grade A office supply,
park network creates new business opportunities. High-          residential communities and Transportation Oriented                    concentrating along Yingbin Road, is expected to peak in      Sanya’s retail market is heavily reliant upon the tourism
quality office stock in these areas is incredibly limited at    Developments (TODs), such as East Railway Station-Yingbin Rd,          2022, with total stock expected to increase seven-fold in     industry. More malls are specifically targeting tourists and are
the moment, but new developments are in the pipeline.           Xiuying and Mission Hills.                                             the next five years.                                          offering experiential tenant mixes heavily weighted towards the
                                                                                                                                                                                                     F&B, leisure and entertainment trades. Sanya has benefited from
Preferential tax policies are expected to attract numerous      Favourable policies and improving market confidence will see                                                                         a lack of outbound tourism over the last year, attracting throngs
services firms and technology enterprises to set up             more well-known brands and operators explore new opportunities                                                                       of domestic tourists looking for a substitute to Bali, Phuket or
premises and help grow their businesses, driving further        or expand market presence in Haikou, bringing new dynamism to                                                                        Halong Bay. Additionally, duty-free stores and outlets have also
demand for the city’s rapidly growing Grade A office            the market. Several large retail centres are in the works, including                                                                 attracted those looking to replace trips to Hong Kong, Dubai or
market.                                                         projects from China Resources, Longfor and OCT Group. The                                                                            Jeju.
                                                                upgrade and increasing range of options available will be sure to
                                                                attract both domestic and international retailers.

                                                               10                                                                                                                                   11
Sustainable development                                                                                                                                                        Sustainable development

                                                               Fullsing Town Internet
 Key industrial parks in Hainan                                Innovation Park
                                                               City                  Haikou
                                                                                                                                                                                                                                                                 Hainan’s economy is small, at RMB553.3 billion in 2020,
                                                                                                                                                                                             Haikou Jiangdong New Area
                                                               Leading industry      Hi-tech                                                                                                                                                                     and its GDP is just 5% the size of Guangdong’s economy.
 Yangpu Economic Development Zone
                                                               Key subsectors        Digital
                                                                                                                                                                                              City               Haikou                                          The economic makeup of each city can vary significantly.
 City                Danzhou area
                                                                                                                                                                                              Leading industry   Modern service                                  Over 80% of Haikou’s economic output comes from the
 Leading industry    Hi-tech                                                                                                                                                                                                                                     tertiary sector. Sanya also has a larger tertiary industry
                                                                                                                                                                                              Key subsectors     Airport, service, ecology
                                                                                                                                                                                                                                                                 but is more reliant on tourism. Danzhou has a larger
                     Oil & gas, logistics, ocean
 Key subsectors
                     equipment                                                                                                                                                                                                                                   primary industry (agriculture), while Yangpu EDZ (within
                                                                                                                                                                                                                                                                 Danzhou’s boundaries but usually listed separately in
                                           Yangpu Economic Development Zone                                                                                                                                                                                      statistics) is one of the provinces’ largest industrial bases.
                                           (Lingao Jinpai Port Lingang Industrial                Haikou Integrated Free Trade Zone                                                                               Wenchang International
                                                                           Park)                                     Haikou
                                                                                                                                                                                                                 Aerospace City
                                                                                                                                                                                                                 City                Wenchang
                                                                                                                                                                                                                                                                 The Hainan government identified twelve key industries
                                                                                                 Leading industry    Modern service                                                                                                                              in 2015 as important drivers of the economy. Output from
                                                                                                                                                                                                                 Leading industry    Hi-tech                     these industries accounted for 66.1% of Hainan’s GDP
                                                                                                                     Bonded manufacturing, bonded
                                                                                                 Key subsectors      logistics, cross-border e-commerce,                                                         Key subsectors      Aerospace technology        in 2020, up 3.2 ppts YoY. The tourism and the Meetings,
                                                                                                                     completed car import
                                                                                                                                                                                                                                                                 Incentives, Conventions and Exhibitions (MICE) sectors
                                                                                                                                                                                                                                                                 were greatly affected by COVID-19 in 2020, but other
                                                                                        Hainan Resort Software
                                                                                        Community                                                                                                                                                                sectors, including internet, medical and cultural, saw
                                                                                                                                                                                             Lecheng International Medical Tourism
                                                                                        City               Haikou                                                                                                                                                growth rates accelerate.
                                                                                                                                                                                             Pilot Zone
                                                                                        Leading industry   Hi-tech                                                                            City               Bo'ao
                                                                                                                                                                                                                                                                 Tourism, modern services and hi-tech sectors were
       Yangpu Economic Development Zone                                                 Key subsectors     Internet                                                                           Leading industry   Modern service                                  identified as leading industries and a key focus for the
         (Dongfang Lingang Industrial Park)                                                                                                                                                                                                                      FTP going forwards; they also overlap with the twelve
                                                                                                                                                                                                                 Medical care, medical
                                                                                                                                                                                              Key subsectors
                                                                  Haikou National High-tech Industrial                                                                                                           tourism                                         key industries identified in 2015. In 2020, these three
                                                                  Development Zone
                                                                                                                                                                                                                                                                 leading industries accounted for 43% of provincial
Sanya Yazhou Bay Science and
                                                                  City                 Haikou                                                                                                                                                                    GDP. While tourism has been the traditional driver of
Technology City                                                   Leading industry     Hi-tech                                                                                                                                                                   Hainan’s economy, the local government hopes that
City                Sanya
                                                                                       Pharma, medical device,
                                                                                                                                                                                                                                                                 modern services and hi-tech industries will attract a
                                                                  Key subsectors                                                                                                  Li'an International Education                                                  growing talent pool, with policy support such as lower
Leading industry    Hi-tech                                                            manufacturing, technology
                                                                                                                                                                                  Innovation Experimental Zone
                                                                                                                                                                                                                                                                 personal income tax, and build a more varied and resilient
                    Deep-sea technology,                                                                                                                                          City               Lingshui
Key subsectors
                    agriculture                                                                                                                                                                                                                                  economic base.
                                                                                                                                                                                  Leading industry   Tourism

                                                                                                                                                                                  Key subsectors     Education                                                   The establishment of eleven key industrial parks was
                                                                                                                                                                                                                                                                 announced in June 2020 to attract relevant industries
                                                                                                                                                                                                                                                                 and business, including five in Haikou and two in Sanya.
Sanya Central Business District
                                                                                                                                                                                                                                                                 The eleven industrial parks contributed over 30% of tax

                                                                                                                                                                                                                                                                 income for the whole province in 2019.
City                Sanya

Leading industry    Modern service                                                                                                                                                                                                                               Hainan, at the vanguard of reforms designed to attract

                    Headquarters, trade                                                                                                                                                                                                                          foreign investment, enjoys special policy advantages.
Key subsectors
                    business                                                                                                                                                                                                                                     Hainan FTP’s 2020 negative list includes fewer industries
                                                                                                                                                                                                                                                                 (27 items) than the national negative list (33 items) and
                                                                                                                                                                                                                                                                 free trade zone negative list (30 items).

Selected construction projects, corporate signings and key projects

          2018                                             2019                                                                                                                                           2020                                                                                                     2021

          Nov                     Dec                      Mar                       May                      Jul                        Sep                   Oct          Nov                           Jun                       Aug                Oct               Dec                                       Feb

  SF Express,                 CNPC, China              CTG, Time            China Seeds,                iFly Airlines,           Modetour,                 ALBA Group,   Yankuang              Electricite                 TUI Group,            CNAF, Tesla        GE, CHD, CTG, China                       China Post,
  CSIC,                       Merchants                Medical, Taiji,      China                       iFlytek, Pacific         Anchor                    Temasek,      Group,                De France,                  ITOCHU, New                              Energy, Sinomach,                         Schneider
  Jointown,                   Group, Alibaba,          WFL, Huawei,         Minmetals                   Meinuoke,                Centre for                GLP           Macalline,            SinoChem,                   Oriental                                 China Southern Airlines,                  Electric,
  CNOOC, CRIC                 China Datang             Funde Group                                      Central                  Certification,                          Shenzhen              Shenzhen Stock                                                       Sinograin, CNADC,                         CDP Group,
                              Cooperation,                                                              University of            State                                   Meian                 Exchange,                                                            PowerChina, CRM, Nankai                   Guangzhou
                                                                                                                                                                                               Oriental Airlines,                                                   University, GLP, BioPlus                  Jiacheng
                              Group, CP                                                                 Finance and              Development                             Technology
                                                                                                                                                                                               Juneyao Airlines,
                              Group                                                                     Economics
                                                                                                                                                                                               Ctrip, Shell

                                                                                                                                                                                                                                                                                       Source Hainan Government, Savills Research

                                                                            12                                                                                                                                                                              13
                                                                                                                                                            Hainan enjoys an exclusive offshore duty-free policy.
                                                                                                                                                            Travellers leaving Hainan (but not the country) have an

                                                                                                                                          Duty-free         annual duty-free quota of RMB100,000 per year. The island
                                                                                                                                                            had nine offline duty-free shops by the end of January 2021
                                                                                                                                           stores           and is expected to see more in the coming months and years.

                                                                                                                                                            The duty-free market in Hainan will play an important role in
                                                                                                                                                            attracting outbound tourism expenditure back to China. In
                                                                                                                                                            2020, duty-free sales increased 104% YoY, with luxury sales
                                                                                                                                                            accounting for around 7 to 9%, according to Bain & Co.

                                                                                                                                                            Cruise liner and yacht charter firms not only provide tourists
                                                                                                                                                            with a richer experience but can also potentially benefit
                                                                                                                                                            related industries. Hainan could also link up with other
                                                                                                                                                            popular tourist destinations along the Belt and Road to

                                                                                                                                                            improve its offerings.

                                                                                                                                                            Sanya Phoenix Island International Cruise Port plans to
                                                                                                                                                            establish itself as a home port for the cruise shopping
                                                                                                                                                            industry, attracting more international cruise firms. More
                                                                                                                                                            policies, such as the loosening of registration thresholds and
                                                                                                                                                            cruise ship logistics tracking, are expected to be rolled out

                                                                                                                                                            An increased emphasis on cultural tourism could enhance
                                                                                                                                                            Hainan’s tourism market. Compared to the island’s plentiful
                                                                                                                                                            natural resources, Hainan’s cultural elements are still
                                                                                                                                          Culture           underdeveloped. Hainan has just six 5A national tourist
                                                                                                                                                            attractions, compared to 279 for the whole country.

                                                                                                                                                            Hainan’s culture industry saw 17.7% growth in 2020 despite
                                                                                                                                                            COVID-19. Haikou Fullsing Town Internet Innovation Park has
                                                                                                                                                            already attracted well-known companies such as Alibaba
                                                                                                                                                            Pictures and Aiqiyi Innovation Centre.

                                                                                                                                                 Tourism visitor time YoY growth rate
                                                                                                                                                                                Foreign                     HK               Macau               Domestic

Building on a firm foundation                                                                                                                       25%
Hainan, as a tropical island, enjoys         The majority of visitors to Hainan are        tremendous potential for further growth.              -25%
a comfortable climate and abundant           from the mainland, with Chinese domestic      However, it still needs to upgrade its
natural resources. Tourism has become        tourists accounting for 96.3% of visitors     tourism offerings from products to                    -50%
the province’s pillar industry. Revenue      over the past decade. Nevertheless,           services—for example, the number of                    -75%
from tourism grew at a compound annual       starting in 2018, 59 countries were granted   international flights to Haikou and Sanya
growth rate of over 10% between 2010 and     30-day visa-free access to Hainan, helping    needs to increase to extend coverage                  -100%
2019, while its share of GDP increased to    to stimulate double-digit growth in           to countries that have access to visa-











8.5%. Tourism revenue fell by 10.8% in       overseas visitors, though it remains a very   free travel. The industry also needs to
2020 as a result of the pandemic. However,   small share of total tourist numbers.         develop more attractions and improve the
with a strong second half, tourism still                                                   services on offer to maintain its attraction
managed to account for 7.3% of the year’s    While it is one of China’s most developed     to existing tourists and competitive
                                                                                                                                                                                                            Source Hainan Statistics Bureau, Savills Research
economic output.                             tourist destinations, Hainan still has        advantage over competing locations.

                                                              14                                                                                          15
Opportunities                                                                                                                                  Opportunities
                                                           The medical-related industries output increased 11% per                                                                                         Hainan’s internet industry is one of the fastest-

Enhancing                                                  annum over the last three years, accounting for 3.5% of
                                                           the province’s economy by 2020. Hainan’s subtropical
                                                                                                                                         The future                                                        growing sectors in recent years, with its industrial
                                                                                                                                                                                                           output increasing by 32% in 2020 alone. Companies

                                                           to tropical climate is deemed a suitable setting for                                                                                            are concentrated in Hainan Resort Software

                                        Medical            developing the medical care and nursing home industry,
                                                           similar to retirement communities such as Florida. Other                                                                       Internet         Community and Fullsing Town Internet Innovation
                                                                                                                                                                                                           Park, contributing 63% of revenue.
                                                           related sectors, such as medicine and medical devices
                                                           production, are also growing rapidly.                                                                                                           The internet industry will continue to expand rapidly

                                                                                                                                                                                                           in the coming years, with plans to make it a trillion
                                                           Bo’ao Lecheng International Medical Tourism Pilot Zone                                                                                          RMB industry by 2035, representing an annualised
                                                           plans to be at the forefront of China’s medical and health                    Hainan was home to 838 government-                                growth rate of 26% over the next 15 years.
                                                           care field reforms. The pilot zone plans the only storage                     certified hi-tech companies by the end
                                                                                                                                         of 2020, growing by more than 40% per

                                                           warehouse for innovative medicine and medical devices.
                                                                                                                                         annum for the last three years. Of the
                                                                                                                                         eleven key industrial parks, six target the
                                                                                                                                                                                                           Hainan plans to prohibit the sale of diesel and petrol
                                                                                                                                         hi-tech sector. Haikou National High-tech                         vehicles by the end of 2030, instead relying upon
                                                           The growth in the MICE industry will lead to growth
                                                                                                                                         Industrial Development Zone, the only                             NEVs. Hainan NEV sales increased 142.5% in 2020 with
                                                           in related industries such as transportation, F&B and
                                                                                                                                         national-level industrial park in Hainan,                         31,200 new NEVs registered, three times the original
                                                           accommodation, which accounted for 88% of revenues in
Hainan’s modern service sector,
which accounted for 29.1% of GDP,
                                                                                                                                         saw hi-tech companies contribute over 70%
                                                                                                                                         of the park’s total output.
                                                                                                                                                                                           NEV             plan.

recorded the fastest growth of the
three leading industries in 2020,
                                        Exhibition         Hainan has already established several exhibition series,
                                                                                                                                         Traditionally, Hainan is not particularly
                                                                                                                                                                                                           The automobile sector has a long value chain. Tax
                                                                                                                                                                                                           support for imported vehicle manufacturing and
                                                           namely Bo’ao Forum for Asia and the World New Energy
growing by 10.9% YoY. Haikou and                           Vehicle Congress (WNEVC). The China International                             strong in hi-tech industries, except for the                      assembly would significantly benefit the development
Sanya account for 43% and 15%                              Consumer Products Expo or “Hainan Expo” will be added                         marine and aviation sectors. There are,                           of Hainan’s industrial base.
of the island’s tertiary industry,                         to this growing roster in the future.                                         however, opportunities to cooperate and
respectively. According to Oxford                                                                                                        coordinate with the GBA economies to help
Economics, Haikou’s tertiary                                                                                                             the island attract businesses and talented
industry is expected to triple in the                                                                                                    workforces.
next 15 years to over RMB400 billion,                      Hainan also enjoys significant policy support for future                                                                                        Hainan has a strong base of marine and aviation
bringing new demand to the city’s                          financial reform. For example, there is no minimum                                                                                              industries and R&D capabilities, with the majority
                                                                                                                                         Hainan is also investing in modern
office market.                                             entry threshold requirement for Qualified Foreign
                                                           Limited Partnership (QFLP) enterprise registration to
                                                                                                                                         infrastructure to assist with the                Ocean            of companies located in Sanya Yazhou Bay Science
                                                                                                                                                                                                           and Technology City and Wenchang International
                                                           attract foreign investment.
                                                                                                                                         development of smarter cities and                   &             Aerospace City. As a pillar industry of Hainan, the
A more open economic policy
structure will be particularly          Finance            Financial services are key to the goal of free trade
                                                                                                                                         communities. The island allows for
                                                                                                                                         foreign investment into the value-added          aviation         marine industry accounts for 36.3% of the province’s
beneficial to tertiary industries                          and investment. Several banks have already accepted                           telecommunication field, while restrictions
such as trade and business services,                       applications for free trade accounts to facilitate cross-                     in online data processing and transaction
while a maximum individual income                          border capital transfers.                                                     processing have also been removed.
tax of 15% will be attractive to                                                                                                         Registered enterprises with service facilities          Internet industry output growth rate, 2016-2020
local and international companies                                                                                                        in Hainan are also allowed to develop data
and individuals from high-paying               Output of selected service sectors, 2018-2020                                             centres and content distribution platform
industries such as finance and hi-                                                                                                                                                                35%
                                                                                                                                         services in Hainan and internationally.
                                                                                             2018            2019             2020
tech R&D.                                                                                                                                More internet companies are expected to
                                                    15%                                                                                  benefit from further opening up.
Hainan’s 2020 foreign investment
                                                    10%                                                                                                                                           25%
negative list, compared to other                                                                                                         The National Development and Reform
parts of China, has further                                                                                                              Commission (NDRC) is also supporting the
                                                     5%                                                                                                                                           20%
liberalised access to industries such                                                                                                    development of the automobile industry
as education and business services.                  0%                                                                                  in Hainan. Foreign-invested automobile
Overseas higher educational                                                                                                                                                                        15%
                                                                                                                                         manufacturers in Hainan are no longer
institutions and vocational colleges                 5%                                                                                  subject to foreign equity restrictions or                10%
specialising in science, engineering,               -10%                                                                                 restrictions regarding the number of joint
agriculture and medicine can operate                                                                                                     ventures producing similar products.
                                                    -15%                                                                                                                                           5%
facilities independently in Hainan,                                                                                                      Meanwhile, the improvement of new
complementing local educational                                                                                                          energy vehicle (NEV) infrastructure is also
                                                -20%                                                                                                                                               0%
resources.                                                                                                                               in line with the government’s vision to
                                                           Healthcare    Financial         Exhibition       Logistics    Education                                                                           2016       2017            2018           2019           2020
                                                                         services                                                        upgrade industrial bases while promoting
                                                                                                                                                                                                                               Source Hainan Statistics Bureau, Savills Research
                                                                                                                                         sustainable development.
                                                                                     Source Hainan Statistics Bureau, Savills Research

                                               16                                                                                                                                                   17
Incentives                                                                                                                       Incentives

Corporates                                                                                                                                          Individuals
Tax discounts

         1.             ­ orporate income tax (CIT) for encouraged enterprises will be capped at 15%. (Encouraged
                        enterprises refer to those whose main business falls under the “encouraged catalogue” and
                        account for over 60% of business revenues.)

          2.                 ­ orporate capital expenditures to be fully tax-deductible or to accelerate their
                             depreciation and amortisation.

            3.                      Corporate tax exemptions for tourism, modern services and high-tech industry
                                    enterprises on the income acquired from a new foreign direct investment
                                    between January 1, 2020, and December 31, 2024.                                                                 Talent

Industry specific
                                                                                                                                                                   ­ aximum individual income tax of 15% for eligible talent (based on salary, professional
                                                                                                                                                                   certificates or awards).

   Manufacturing                              Trade                                    Retail                            Aviation                         2.            ­ oreign personnel are permitted to serve as legal representatives for legal
                                                                                                                                                                        bodies, public institutions and state-owned enterprises.

Enterprises importing               Goods transiting and leaving            Island residents are exempt         Allow flights in and out of
production equipment and input      the country via Yangpu Port             from import duties, import          Hainan to refuel with bonded
                                                                                                                                                                                 Eligible individuals are entitled to subsidies for the lease or purchase of a
materials for their own use are     will be rebated at the port of          value-added tax and                 aviation fuel. Expand air traffic
exempt from import tariffs,         departure on a trial basis. The         consumption tax on purchases        rights to include the fifth and                                  residential property.
import value-added taxes and        import and export management            of imported goods.                  seventh freedoms of the air.
consumption taxes.                  system of “first-line
                                    liberalisation and second-line
                                    control” will be implemented in
                                    Yangpu Bonded Port Area.

        Financial                        Automobile                             Consultancy                            Education
Support overseas securities,        Foreign-invested automobile             Restrictions on foreign             Allow international higher          Cross border
funds, and futures institutions     manufacturers in Hainan are no          investment in the field of market   education institutions and

to set up wholly-owned or           longer subject to foreign equity        research will be removed , except   vocational colleges specialising
jointly-owned institutions in       restrictions or restrictions            the radio broadcasting and TV       in science, engineering,
Hainan. No minimum entry            regarding the number of joint           ratings which must be controlled    agriculture and medicine to                    30-day visa-free access for foreign nationals from 59 countries.
threshold requirement for           ventures producing similar              by a domestic joint venture         independently open campuses
QFLP enterprise registration.       products.                               partner.                            in Hainan.

                                                                                                                                                          2.              Pre-arrival registration can be made by individuals or through a travel agency.

                                                                                                                                                                                  ­ oreign nationals travelling to Hainan for trade or business purposes,
       Exhibition                   Telecommunication                                   Law                             Logistics                                                 visiting relatives, seeking medical care or attending conferences or
Duty-free import and sales of       Open value-added                        Foreign firms can engage in         Prioritise land supply for key                                    sporting events can register for visa-free entry.
overseas exhibits at exhibitions.   telecommunication business to           non-litigation commercial           logistics infrastructure.
                                    foreign investment.                     affairs in Hainan.

                                                                       18                                                                                                                            19
Central Management                                  Research
Siu Wing Chu                                        James Macdonald
CEO                                                 Senior Director
China                                               China
+86 21 6391 6688                                    +86 21 6391 6688
siuwing.chu@savills.com.cn                          james.macdonald@savills.com.cn

Woody Lam                                           Chester Zhang
Managing Director                                   Director
Southern China                                      China
+86 755 8436 7000                                   +86 21 6391 6688
woody.lam@savills.com.cn                            chester.zhang@savills.com.cn

Cindy Wu                                            Carlby Xie
General Manager                                     Director

Hainan                                              Southern China

+86 898 3638 4226                                   +86 20 3665 4874

cindy.wu@savills.com.cn                             carlby.xie@savills.com.cn

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